Fate of effort to block IRS private debt collection hinges on Senate

By Dan Friedman

October 10, 2007

The House Wednesday is expected to pass a bill eliminating the authority of the IRS to use private debt collection companies to pursue small taxpayer debts, as opponents look to the Senate to stop the measure.

The IRS last year began assigning thousands of accounts of individuals who owe taxes to private debt collection companies, which can earn commissions of close to 25 percent for each dollar recovered.

The agency has said that because it lacks the manpower to recover the debts, the collection companies over 10 years can add up to $2 billion to federal coffers.

In the face of strong opposition by the National Treasury Employees Union, which represents many IRS employees, the program has become emblematic of what many Democratic lawmakers see as a broad overreliance by the Bush Administration on private contractors to do federal work.

Rep. Chris Van Hollen, D-Md., who co-sponsored the measure, said "prospects of the passage are good."

In the Senate, where a companion measure has yet to emerge from committee, prospects are dimmer. Senate Finance ranking member Charles Grassley, R-Iowa, opposes the bill and lawmakers such as Sen. Charles Schumer, D-N.Y., have indicated interest in a compromise.

Dan Drummond, a spokesman for the Tax Fairness Coalition, a group representing collection agencies with IRS contracts, said that opponents hope senators will block the bill or fashion a compromise where the program remains in place with some portion of the revenue tax collectors generate diverted to hire new IRS employees.